Cost of ethanol will hit red meat industries hard

Ethanol development based on corn in Ontario comes at a net cost
of about $150 million per year to the Ontario economy, according
to an independent George Morris Centre report.

This cost will be borne most directly by the pork and
beef industries.

The report finds that the rapid development of ethanol
production capacity in Ontario could lead to a permanent import pricing basis
for corn, which would undermine the basis for cost-competitive pork and beef
industries, and induce dramatic downsizing.

Downsizing
warrantedâ€œAs it stands, Ontario marketings of hogs and cattle have
already outstripped the capacity of domestic corn to feed them, so downsizing is
warranted. But the appetite for corn from ethanol plants coming on line in
the near future is immense, and backed by subsidy. The export-based red
meat industry in Ontario will be unable to compete for corn with ethanol, and
the firm import pricing basis for corn that results will decimate the red meat
industriesâ€, says Al Mussell, Senior Research Associate at the George Morris
Centre and lead author of the report.

The report traces the link between
corn production, consumption in feed and industrial uses, and ethanol production
and distiller's dried grains (DDG) in its analysis of forthcoming adjustments as
ethanol production increases. â€œEven when we force the maximum feasible
inclusion rates of DDG into livestock rations, the implied shrink in hog and
cattle marketings that would return Ontario to competitive corn basis levels is
simply dramaticâ€, says Graeme Hedley, a George Morris Centre
Associate.

Bottom lineThe report concludes that,
even at $148-156 million per year, these results significantly understate the
entirety of adjustment costs. According to Mussell, â€œour results only
scratch the surface, as we have not included losses or asset devaluation in
feed, veterinary, or animal breeding. Clearly this also has implications
for ethanol production in Western Canada. The bottom line is that this
will result in a very hard landing for red meat segments in Eastern and Western
Canada, based on our current course.â€

The complete GMC report entitled
â€œCrowding Out: The Real Ethanol Issue in Canada â€ is available on the George
Morris Centre website: www.georgemorris.org